Microsoft building web-based office suite?

A while ago it was rumoured that Google and Sun were building a web-based office suite. The rumours turned out to be false (so far at least) but it now seems Microsoft is rumoured to be building a web-based Office suite.

According to ZDNet, a Microsoft insider said said "Everything. Hosted Office. Everything hosted" when asked what applications Microsoft plans to offer hosted as services.

If this is true, Office 12 may be the last desktop office suite from Microsoft. Perhaps "Office 13" will take advantage of some new functionality in Vista such as XAML and would allow some basic things to be done offline but files, tools such as spelling, etc. to be done online. The disadvantage of hosted web applications is that if your connection breaks or something, you can’t carry on with your work and you may lose data and time. 

I do wonder how practical it would be to create a fully 100% online office suite.

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